The Governing Law of Arbitration Agreements: Should Australia Introduce a Legislated Default Rule?

The recent amendment to the English Arbitration Act 1996 (“the Act”) to introduce a default rule for determining the governing law of an arbitration agreement marks a notable shift in international arbitration practice. By providing that, in the absence of an express choice, the law of the seat will govern the arbitration agreement, England has sought to provide certainty and reduce unnecessary complexity for parties, tribunals, and courts. As other pro-arbitration jurisdictions in the Asia-Pacific region move to consider similar reforms, the question arises whether Australia should consider amendment to its own arbitration acts.

The Amendment                                            

Under the doctrine of separability, an arbitration agreement is treated as distinct from the main contract, ensuring its validity is unaffected by any invalidity in the main contract. However, this principle can also result in the arbitration agreement and the main contract being governed by different laws if the parties fail to expressly choose governing laws for both.

Until relatively recently, the English common law position for determining the governing law of an arbitration agreement in the absence of parties’ express choice was uncertain, with two diverging approaches having developed. In the seminal judgment of Enka v Chubb [2020] UKSC 38 (“Enka”), the majority held that in the absence of an express choice for the arbitration clause, the choice of law for the main contract would generally apply, and where no choice existed (or if applying it would invalidate the clause) the governing law would be the one “most closely connected” to the arbitration agreement. For a more detailed overview of Enka, see this post and this post.

However, just a year after the Supreme Court settled the question, the Law Commission of England and Wales reviewed the rule in Enka as part of its mandate to consider whether the Act continued to support England and Wales as a leading destination for international commercial arbitration. In its final report, the Commission observed that the rule in Enka was legally complex and could be unpredictable in its application to the facts and risked leading to extensive satellite arguments, unnecessary costs, and delays in arbitral proceedings. The Commission’s subsequent recommendation that a legislated, default rule be introduced that “the arbitration agreement is governed by the law of the seat” unless expressly agreed by the parties was accepted, and came into effect alongside a suite of amendments via the Arbitration Act 2025 on 1 August 2025.

The Asia-Pacific Region’s Response to the Amendment

Shortly after the Commission made its recommendation, pro-arbitration nations in the Asia-Pacific region began considering their own reforms in relation to determining the governing law of the arbitration agreement.

Singapore

In 2024, the Singaporean Ministry of Law (“Ministry”) commissioned the Singapore International Dispute Resolution Academy (“SIDRA”) to investigate whether the International Arbitration Act 1994 “remains state of the art, in support of Singapore as one of the top choices by parties to seat their international arbitrations.” To this end, SIDRA was instructed to, among other things, consider whether Singapore should legislate a default rule for the determination of the governing law of an arbitration agreement in the absence of an express choice by the parties (noting that the current position in Singapore is broadly similar to the English position prior to amendment). Following a detailed review, SIDRA published its report on 21 November 2024, and recommended that Singapore enact a statutory rule, finding that the introduction of a more prescriptive and straightforward default position would increase legal certainty and predictability for arbitrating parties. As to the rule itself, SIDRA recommended legislating the default position that an express choice of governing law for the main contract would be construed as a choice of governing law for the arbitration agreement, arguing that this approach was preferable to that taken in England for numerous reasons including that it would avoid inconsistent decisions on contractual issues relating to the arbitration agreement and the main contract. Between March and May 2025, the Ministry sought submissions on this recommendation from stakeholders through a public consultation process, but has not yet made its results public.

Malaysia

In June 2024, the Prime Minister’s Department of Malaysia announced its intention to amend its Arbitration Act 2005 (alongside other initiatives) to strengthen the Asian International Arbitration Centre’s standing as an independent international arbitral institution and to promote “Malaysia as the preferred seat of arbitration.” In July 2024, both houses of the Malaysian Parliament passed a bill to amend the Act, which introduced, among other things, a default rule that “[w]here the parties fail to agree . . . the law applicable to the arbitration agreement shall be the law of the seat of the arbitration.” The amendment, which is yet to come into effect, will codify the existing common law position in Malaysia. Malaysian practitioners have observed that these reforms, once introduced, will “enhanc[e] the nation’s reputation and influence within the international arbitration community” and bring the Malaysian arbitration regime in line with international best practices.

Australia’s Position

Like pre-amendment England, and Singapore and Malaysia currently, Australia’s International Arbitration Act 1974 does not provide a statutory rule for determining the governing law of an arbitration agreement where the parties have not made an express choice. In such cases, Australian courts must rely on common law choice of law principles.

This post examines the historically conflicting Australian case law on the topic, explaining that, as in England, the lack of clarity provided under the Australian act had led to two competing and conflicting lines of authority in the Federal Court. More recently, however, in Dialogue Consulting Pty Ltd v Instagram, Inc [1010] FCA 1846 (at [474]), Justice Beach provided some clarity when his Honour observed that:

“[U]nder Australian choice of law rules, the governing law [of the arbitration agreement] is found by considering whether the parties have made an express or implied choice of law in the agreement or where no choice has been made, by seeking the legal system with which the agreement has its closest and most real connection.”

It is notable that the test articulated by Justice Beach is very similar to the approach later set out in Enka (though his Honour does not cite the decision or any other authority for the proposition).

Enka has, however, received some consideration in subsequent decisions in Australian courts. In CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527 (at [30]), Justice Jackman cited Enka as authority for the proposition that “[t]he law governing the arbitration agreement is the law chosen by the parties or, in the absence of express or implied choice, the law with the closest and most real connection to the arbitration agreement.” In the High Court, Australia’s apex court, Justice Edelman cited Enka in his minority judgment in Tesseract International Pty Ltd v Pascale Construction Pty Ltd [2024] HCA 24 as authority for the proposition that “[t]he choice of the parties can be inferred from the circumstances of the case. One particularly significant circumstance will be any express or implied choice of law to govern the operation of the main contract, in which the arbitration agreement is contained.”

Should Australia Introduce a Legislated Default Rule?

Recent Federal Court and High Court decisions demonstrate that Australian courts are increasingly willing to consider and apply the reasoning in Enka, particularly in circumstances where the existing common law position appears to utilise the “closest and most real connection” test. However, as explained above, the Enka test is inherently fact-sensitive and can invite costly and time-consuming litigation on what is often a peripheral issue to the dispute. In circumstances where other pro-arbitration jurisdictions—particularly in the Asia-Pacific—are considering pursuing reform and moving away from common law tests for determining the governing law of arbitration agreements, Australia should consider whether its current approach remains aligned with international best practice.

There are clear advantages to introducing a legislated position for determining the governing law of arbitration agreements. The introduction of such a rule would promote clarity, efficiency, and predictability for arbitrating parties, tribunals, and courts in Australia, thereby reducing the scope for satellite litigation and its associated costs and delays. Legislative reform would not, however, be without its challenges. The question for Australian lawmakers would be not only whether to introduce a default rule, but also what form it should take—whether to follow the law of the seat like in England and Malaysia, the law of the main contract as proposed in Singapore, or to adopt a different approach altogether. As the English and Singapore reform processes have shown, achieving consensus will demand extensive consultation with stakeholders, and it is unlikely that all interests will be aligned or satisfied with the eventual outcome. Ultimately, any reform must be designed and intended to reinforce Australia’s reputation as a robust, efficient, and predictable forum for international arbitration.